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Oct 8, 2018

Republicans believe U.S. economic system is fair to most Americans I The Finance 202 I The Washington Post.

Protestors
take part in the "Tax March" in New York last year calling on President
Trump to release his tax records. (AFP PHOTO / Kena Betancur)

The
country’s growing partisan divide isn’t confined to the shoutfest over
Brett M. Kavanaugh’s Supreme Court confirmation: Republicans and
Democrats also hold increasingly divergent views about the basic
underpinnings of the economy.For the first time since
the question was asked in 2014, a clear majority of Republicans and
right-leaning independents — 57 percent — now say the economic system is
fair to most Americans, according to a survey released last week
by the Pew Research Center. That represents a 7-point swing from just
over two years ago, when a majority of the same population said the
system favored powerful interests. Meanwhile a rising number of Democrats, 84 percent, say the economy is unfairly skewed toward the powerful. The
results point to an electorate in which the two major camps perceive
fundamentally different realities, and the chasm is only widening.
For example, while Republicans have long proved more likely than
Democrats to chalk up wealth to hard work, the Pew survey found the
partisan gap on that question has doubled in just the past four years:The phenomenon is evident in a midterm campaign unfolding on a split screen. Republicans are pointing to an economy that’s humming by many measures and in which unemployment just hit a 49-year low. Democrats are highlighting rising health-care costs, stubbornly sticky real wage growth, and the economy’s failure to
produce higher-paying jobs. And the party is arguing that the GOP has
pushed to make a bad situation worse, in part through tax cuts tilted
toward the wealthy. The House Democratic campaign arm made that case in
an uncharacteristically pointed ad this month that depicted workers as
furniture for corporate executives gloating over their tax-cut windfall:

Perhaps
unsurprisingly, the Pew survey also found that a person’s income
colors how they see others’ wealth: Those making more than $75,000 a
year are more inclined than those pulling down less than $30,000 to view
wealth as the product of hard work. Conversely, those earning less are
more inclined to see poorer people as victims of circumstance.The sharpening partisan divide may help explain Democrats’ renewed competitiveness in the Rust Belt,
where President Trump built his winning margin in 2016 in part by
poaching working-class voters from the Democratic column. As Ron
Brownstein wrote in the Atlantic
last week, Democratic incumbents in four of those states — Sherrod
Brown in Ohio, Debbie Stabenow in Michigan, Bob Casey in Pennsylvania
and Tammy Baldwin in Wisconsin — now look like solid favorites. And four
Democratic gubernatorial candidates in the region are mounting
competitive challenges to Republican incumbents. From Brownstein:

The
big question for Democrats is how much of this nascent recovery
represents genuine disillusion with Trump among white working-class
voters in the Rust Belt. It could be, instead, that there’s a lack of
enthusiasm for more traditional Republicans among the blue-collar whites
who surged to the polls for the president in 2016. Michael Podhorzer,
the political director of the AFL-CIO, says the union federation’s
research shows some working-class white women have clearly soured on
Trump, largely because of his effort to repeal the Affordable Care Act.But
the biggest explanation for the shifting numbers, Podhorzer believes,
is that the portions of the white working class hostile to Trump appear
somewhat more likely to vote next month than those who support him.

Voters motivated by a sense that the economy remains rigged in favor of the rich got fresh ammunition last week with the New York Times's report detailing Trump’s $413 million inheritance. And the president already looked primed to prove more galvanizing for Democrats than an uneven economic recovery.

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MARKET MOVERS

Traders work on the floor of the New York Stock Exchange on Friday. (Michael Nagle/Bloomberg)

— Surging yields threaten stock market tipping point. WSJ’s Michael Wursthorn and Sam Goldfarb:
“Yields on long-term U.S. government debt moved abruptly higher last
week, calling into question the durability of the more than
nine-year-old bull market for stocks. A booming U.S. economy and
investors’ desire to put their money in riskier assets, such as stocks
and corporate bonds, have sent bond prices tumbling. That in turn has
pushed the yield on the benchmark 10-year U.S. Treasury note, the
backbone of borrowing costs for consumers, corporations and governments,
to 3.23%.
"A strong economy is generally good for stocks. But if
yields continue to march higher, investors may start to pull back from
riskier assets since they are being better compensated for holding
risk-free ones… The dilemma for stock investors is in gauging at what
point higher yields will cause a significant reversal.”
— Global finance chiefs descend on Bali divided. Bloomberg’s Enda Curran and Rich Miller:
“As global finance chiefs prepare to meet this week in the resort of
Bali, Indonesia, for the annual International Monetary Fund and World
Bank meetings, they do so without the firepower of 2008 and with the era
of coordination looking like an anomaly. Today, central banks still
have historically low interest rates and are following different paths,
while finance ministers are hamstrung by debt. Governments are also
pushing nationalist, not globalist, agendas and grappling with headaches
such as Brexit, trade wars, surging oil prices and volatile currencies.
‘There are no arrows left in the economic quiver,’ said Danny
Blanchflower, a professor at Dartmouth College in New Hampshire who was a
policy maker at the Bank of England in 2008.”
— Bank earnings loom. WSJ’s Akane Otani and Tristan Wyatt:
“The third-quarter earnings season kicks off in earnest Friday, with
JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc., and PNC
Financial Services Group Inc. scheduled to post results. Investors hope
another quarter of double-digit growth will help stabilize stocks
recently buffeted by trade and interest-rate worries. Technology and
financial companies have accounted for the biggest share of the S&P
500’s overall earnings growth in recent years. But when it comes to
revenue growth, health care and consumer staples have been the biggest
contributors.”
— Global dealmaking appetite wilts. CNBC's Ryan Browne: "Companies' appetite for mergers and acquisitions has fallen to a four-year low, with investment pressured by worries over Brexit and
the U.S.-China trade battle, according to a study released on Monday.
Less than half — 46 percent — of global executives plan to buy other
firms in the next 12 months, a 10 percent decline from the previous
year, EY said in its biannual 'Global Capital Confidence
Barometer' report. The consultancy said that 46 percent of respondents
to a survey of more than 2,600 executives across 45 countries also said
they saw regulation and geopolitical uncertainty as the biggest risk to
dealmaking activity over the next year."

The steep decline in emerging market stocks since early this year are
attracting some U.S. fund managers who think they may find long-term
bargains amid the sell-off. Reuters

Jair Bolsonaro, an ex-army captain often compared to President Trump,
shocked Brazilians by capturing nearly half the vote in Sunday’s
election. Anthony Faiola and Marina Lopes

TRUMP TRACKER

A
family poses for a photo with characters from the Toy Story movies
during the grand opening of Toy Story Land at Shanghai Disneyland in
Shanghai. Walt Disney Co. stressed its deep China connections as it
opened an extension of Shanghai's $5.5 billion Disney Resort earlier
this year. (AP Photo)

TRADE FLY-AROUND: — Tensions flare on Pompeo visit to Beijing. Bloomberg:
"U.S. Secretary of State Michael Pompeo cited 'fundamental
disagreement' with China’s foreign minister during a testy exchange in
Beijing that highlighted rising tensions between the world’s two largest
economies. Pompeo’s retort came after Chinese Foreign Minister Wang Yi
accused the U.S. on Monday of escalating trade disputes, interfering on
Taiwan and meddling in the country’s domestic affairs. 'These actions
have damaged our mutual trust, cast a shadow over China-U.S. relations,
and are completely out of line with the interests of our two
peoples,”'Wang told his visiting American counterpart.
"The
exchange came as Pompeo arrived in the Chinese capital during an Asia
trip focused on securing a disarmament deal with North Korea and
maintaining international pressure against Kim Jong Un. The visit was
the latest indication of deteriorating ties between the U.S. and China,
as the two sides tussle over everything from trade to Taiwan and the
South China Sea."
(Bloomberg has a rundown of the building tension in the South China Sea here.)Chinese retaliation could doom big U.S. deals.NYT’s Alexandra Stevenson:
“China is looking for new ways to retaliate in the intensifying trade
drama — and experts warn that some corporate deals with American buyers
could be in jeopardy. A number of global deals involving American
companies are under review by Chinese market regulators. Among the
biggest is Walt Disney Company’s $71 billion acquisition of 21st Century
Fox, which has an Oct. 19 deadline. United Technologies — owner of
Pratt & Whitney, the jet engine maker, and other industrial
businesses — is waiting to close a $30 billion purchase of Rockwell
Collins, the aerospace parts maker.
"China’s antitrust regulators
disclose little about their deliberations. But some companies worry
that this opacity could provide cover for retaliation in response to
tariffs that the United States has placed on Chinese goods — and wonder
if long-negotiated deals could become collateral damage in the trade
war.”(We flagged both the Disney and United Technology deals as possible targets of Chinese reprisal here on July 31.)Trump's China strategy comes into focus. NYT's Neil Irwin writes
that the apparent incoherence of the administration's approach to
rebalancing U.S. trading relationships is resolving into something that
looks like a plan: "The strategy that has jelled goes something like
this: The president has been beating up on traditional allies, including
Canada, Mexico, the European Union, Japan and South Korea... But
fundamentally, that was just about softening them up to extract moderate
concessions favorable to American interests... Now that the
administration has shown it can get to yes with those deals, similarly
patterned agreements with Europe and Japan are expected to come next.
After revised deals with those allies are in place, the administration
will most likely seek a concerted effort among them to isolate China and
compel major changes to Chinese business and trade practices."
But
that isn't the story Trump is offering voters weeks ahead of the
midterms, as this exchange in a weekend interview with a Memphis outlet
revealed:

Asked about
Marsha Blackburn's tariff concerns by WREG Memphis, Trump said, "Well,
she doesn't have to worry about it anymore. Neither do you. Because, as
you know, we made our deal with Mexico and Canada." The deal doesn't
touch any existing tariffs, let alone the China tariffs. pic.twitter.com/DlDkZJ5Iba

Homeland Security questions report of Chinese hack. Bloomberg's Mike Dorning: "The
Department of Homeland Security said it has no reason to question
denials by U.S. technology companies of a report that Chinese spies had
used a microchip to hack into American computer networks. 'At this time
we have no reason to doubt the statements from the companies named in
the story,' Tyler Houlton, press secretary for the Department of
Homeland Security, said in an emailed statement late Saturday. The
companies, including Amazon.com Inc. and Apple Inc., have denied that their systems were compromised."
And Apple's top security officer in a letter to Congress on Sunday said the company had found no evidence of a hack, per Reuters.Chinese central bank looks to jump-start lending. WSJ’s Chao Deng:
“China’s central bank is freeing up nearly $175 billion to get
commercial banks to boost their lending and pay off short-term
borrowings, the latest effort by Beijing to lift growth in a slowing
economy as its trade fight with the U.S. escalates… Chinese leaders are
eager to get ahead of any potential economic impact of the trade spat
and boost confidence in a flagging stock market, economists say. Stocks
in Shanghai have sunk about 15% since the beginning of the year, while
the yuan has weakened by more than 9% against the U.S. dollar since
mid-April.”MELTDOWN WATCH:

Trump is expected to announce the lifting of a federal ban on summer
sales of higher-ethanol blends of gasoline on Tuesday in Washington DC
ahead of a trip to Iowa the same day, according to two sources familiar
with the planning of the event. Reuters

— Wall Street donors embrace Democrats.NYT’s Shane Goldmacher:
“For the first time in a decade, the broader financial community is on
pace to give more money to Democratic congressional candidates and
incumbents than their Republican counterparts, according to data from
the Center for Responsive Politics… The numbers are stark. Four years
ago, in the last congressional midterm, Republican incumbents and
candidates outraised Democratic counterparts by more than $50 million in
direct donations from the broader finance, insurance and real estate
industries… This year, Democrats held a narrow $5 million advantage
through the middle of the year. That figure will shift, possibly
substantially, when candidates reveal their latest fund-raising hauls
later this month.”The American Bankers Association has given $83,000 to Senate Democratic candidates this cycle, per Reuters,
"and is leading the industry’s push to regain bipartisan support, said
its CEO Rob Nichols. Nichols, whose association has for the first time
bought advertisements for 12 midterm candidates, including four
Democrats, called enhancing the industry’s political capability
'strategically important.' 'This is rigorously bipartisan: if you
support us, we want to support you,' he said. 'This is not about playing
party favorites. For decades, banking policy was bipartisan up until
Dodd Frank, and we’re excited to see a return to this bipartisanship.'"POCKET CHANGE

Paul Romer. (Shawn Thew/ European Press)

— Two Americans win Nobel in economics.AP:
"Two American researchers have been awarded the Nobel Prize for
economics for studying the interplay of climate change and technological
innovation with economics. William Nordhaus of Yale University and Paul
Romer of New York University were announced winners of the
9-million-kronor ($1.01 million) prize on Monday by the Royal Swedish
Academy of Sciences. The academy said Romer’s work 'explains how ideas
are different to other goods and require specific conditions to thrive
in a market.' Previous macroeconomic research had emphasized
technological innovation as a driver of growth but had not modelled how
market conditions and economic decisions affected creation of new
technologies, the academy said."
— Private investment infrastructure booms. WSJ’s Miriam Gottfried:
“Private-equity firms are on track to raise a record amount for
infrastructure investing in 2018, as money managers bet on the growing
need to upgrade and expand the world’s railroads, natural-gas pipelines
and data centers. The firms collectively raised $68.2 billion in the
first three quarters of the year, up 18% over the same period in 2017…
"The
U.S. is the largest market for energy-infrastructure assets, which by
and large aren’t owned by the government. The energy industry’s fracking
revolution and the country’s shift to being a net exporter of natural
gas, as well as the boom in green-energy projects, have created new
opportunities for investment… The fundraising spree comes despite a lack
of progress on infrastructure legislation in Washington.”THE REGULATORS

— Navient faces suit from states after CFPB backs off. NYT’s Stacy Cowley:
“In the final months of President Obama’s administration, the
government’s top consumer regulator was negotiating a large settlement
with the student loan collector Navient, which it said had misled
borrowers and made mistakes that added billions of dollars to their
bills. But after [Trump’s] victory, the talks between the company and
the Consumer Financial Protection Bureau broke down… The possibility
that the Trump administration will ease up on Navient has prompted more
states to join the legal fray. Five have now sued Navient, two of them
within the past four months… If Navient loses in court, the company
could be required to pay billions of dollars in damages and overhaul the
way it handles the accounts of some six million borrowers.”DAYBOOK Today

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